Employer-sponsored retirement plans, including 401(k) programs, will be allowed to make loans and hardship distributions to victims of Hurricane Katrina and members of their families, the Internal Revenue Service said.
For the first time ever, the IRS and the Treasury and Labor Departments are providing broad-based relief to retirement plan participants affected by a major disaster.
"As in other areas, we are doing everything we can to help Hurricane Katrina victims rebuild their lives," said IRS Commissioner Mark W. Everson, in a statement. "This relief will make it possible for people to get their retirement money more quickly with a minimum of red tape."
401(k) plan participants, employees of public schools and tax-exempt organizations with certain tax-sheltered annuities, as well as state and local government employees with certain deferred-compensation plans, may be eligible to take advantage of the streamlined loan procedures and hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.
To qualify for this relief, hardship withdrawals must be made by March 31, 2006.
This relief means that a retirement plan can allow a Katrina victim to take a hardship distribution or borrow up to the specified statutory limits from their plan to repair or replace a home, or for some other purpose. It also means that a person who lives in another part of the country can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.
More information about this relief can be found in IRS Announcement 2005-70, at www.irs.gov.
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